Criteo, the France-based ad tech company, filed a lawsuit on
Monday that alleges rival firm SteelHouse ran a "counterfeit
click fraud scheme" that led to "substantial injury and damage"
to its business and reputation.

Both companies place ads by "retargeting" — dropping a cookie on
a user's browser when they have visited a website — usually an
ecommerce website. When the web user visits other websites,
the publisher can offer that ecommerce company the chance to
purchase ad space targeting that user, which will hopefully
result in that person returning to the ecommerce site and making
a purchase.

Both Criteo and SteelHouse use a pay-per-click pricing model,
which means they only generate revenue when users click on the
ads they have served. The amount they can charge advertisers
depends on their conversion rates (how many people who saw the ad
clicked on it) and by measuring whether the ads served resulted
in sales.

Criteo alleges in the suit that SteelHouse "counterfeited clicks
to trick e-tailers into attributing sales to SteelHouse that
should have been attributed to Criteo, other competitors and
partners, or direct traffic."

The suit also claims SteelHouse used the scheme to falsely
advertise to customers that it "consistently outperformed" Criteo
in head-to-head comparisons, which led to Criteo losing important
business.

The suit says: "SteelHouse’s — or, more accurately, StealHouse’s
— counterfeit click fraud has irreparably harmed and continues to
irreparably harm both Criteo and the online advertising industry
as a whole."

Criteo is seeking "millions of dollars" in damages and legal
fees. Criteo also wants injunctions to be placed on SteelHouse
that will prohibit it from conducting in behavior it believes is
in violation of laws related to false and misleading advertising,
fraud, intentional interference with prospective economic
advantage, libel, and unfair competition.

SteelHouse sent Business Insider this statement on
Wednesday: "It is disappointing that Criteo has chosen to
publicly accuse and attack SteelHouse, particularly on a topic
for which Criteo repeatedly has found itself in the hot seat.
Criteo’s response to SteelHouse’s market success is an attempt to
bully a smaller company in the courtroom and make disparaging
statements and allegations that are counterproductive to the
industry and the advertising community."

Criteo sent Business Insider this statement on Tuesday: "On
Monday 13th June 2016, Criteo (CRTO) filed a publicly available
complaint against SteelHouse in the Central District of
California. In line with Criteo’s Corporate Communications
Policy, we do not comment on ongoing legal investigations and as
such will be making no further comment on this matter."

In late spring/early summer, Criteo said it lost its client TOMS
after SteelHouse made the shoe retailer perform a head-to-head
comparison between the two ad tech vendors' products. The
analysis showed SteelHouse as the victor, the suit says.

Criteo made TOMS perform the test again between November 2015 and
January 2016 and SteelHouse won again, according to the suit.

SteelHouse CEO Mark
Douglas.Gary Miller/Getty
Images

So Criteo conducted a "detailed and costly data log analysis" to
assess how it could improve its performance. It was then that the
company found something amiss, the suit claims:

Criteo’s analysis revealed that during the head-to-head
comparison a large number of clicks attributed to SteelHouse
landed within seconds after clicks attributed to Criteo. These
clicks appeared to be fraudulent because it is highly unlikely
that an internet shopper could click on an advertisement, be
taken to an e-tailer’s website, go to a different publisher’s
website, see a different advertisement for the same e-tailer
placed by a different marketing vendor, and click on the second
advertisement within seconds of having clicked on the first
advertisement.

Criteo continued to monitor the situation using web traffic
analysis software Telerik® FiddlerTM. The suit says Criteo
learned SteelHouse was using a code to counterfeit clicks (you
can read the full, technical explanation in the full suit here:
Download PDF) which made it look as though it was responsible
for bringing shoppers to e-tailers websites. In essence,
SteelHouse loads an invisible, short-lived web page underneath
its clients' web pages that falsely recognizes clicks for
SteelHouse, Criteo alleges. The invisible page then quickly
closes before anyone can see it, Criteo claims.

A lot of advertisers measure performance using a method called
"last click attribution," which gives credit to whichever company
served the last ad a user clicked on before landing at a website.
Criteo alleges in the suit that SteelHouse's scheme worked by
ensuring its "counterfeit" clicks occured after the valid clicks.

The suit claims SteelHouse informed Criteo the method had stopped
when it hadn't.

After monitoring the situation and losing another large client
and ad spend to SteelHouse, in April, Criteo sent an email to
SteelHouse stating its findings and saying that it “was open to
hearing what [SteelHouse’s] CEO intends to do to immediately
remedy this situation," the suit says.

Criteo chief revenue
officer Mollie Spilman.Criteo

Later that month, Criteo's chief revenue officer, Mollie Spilman,
then met with SteelHouse's chief marketing officer, Patrizio
Spagnoletto, in Criteo's New York office, according to the suit.
Shortly after that meeting, SteelHouse's chief monetization
officer, Chris Innes, sent Criteo an email reading: "Thanks for
sending the logs as well as the detailed breakout below. We are
acting on the data below over the next couple of days to remove
the behavior," the suit says.

In May, SteelHouse said it was implementing "global" code changes
that would fix the issue, but Criteo said it subsequently learned
that SteelHouse was making "false statements to e-tailers in an
attempt to minimize its misconduct."

The suit claims SteelHouse emailed clients saying the issue was
limited to "less than 4% of click-based conversions" — a claim
Criteo protests — and that a "discrepancy minimizer tool" was the
source of the issue, rather than, as Criteo claims, that it
deliberately counterfeited clicks.

Later on that month, Criteo noticed SteelHouse "was still
utilizing counterfeit clicks" but was using a different method
that made the behavior more difficult to detect, the suit
alleges.

On May 23, Criteo sent a cease and desist letter to SteelHouse,
calling on the company to stop the scheme. But in June — despite
SteelHouse's claims it had stopped — the suit says Criteo
discovered SteelHouse was still "counterfeiting clicks," which
caused it to file its legal complaint.